Overview
Consumer Choice Theory is a fundamental concept in economics that explains how individuals make decisions about spending their resources. It focuses on the idea that consumers aim to maximize their satisfaction or utility based on their preferences and budget constraints. By understanding how consum...
Key Terms
Example: Higher utility means greater satisfaction from a product.
Example: If you have $20, your budget constraint limits your choices to items that cost $20 or less.
Example: An indifference curve might show combinations of apples and oranges that yield the same satisfaction.
Example: If a consumer is willing to give up 2 oranges for 1 apple, the MRS is 2.
Example: A consumer reaches equilibrium when they can no longer increase satisfaction by changing their consumption.
Example: The first slice of pizza may bring high satisfaction, but the fifth slice may bring much less.